The Citizens Advice Bureau has slammed the payday loan industry after it found lenders had failed to conduct any financial checks in two-thirds of cases.
The CAB has also accused the industry of failing to stick to its customer charter, which was published in November. The charter, which is voluntary, states payday lenders that sign up must offer clear information about loans, carry out sound affordability assessments and notify customers three days in advance of recovering payments.
In a survey of 1,270 loans, the CAB found that no financial checks were made in 65 per cent of cases, leading to seven in 10 being unable to repay the loan. The loans were taken out between 26 November 2012 and 31 March.
Of those borrowers who experienced repayment problems, 85 per cent say they were not given the option of freezing interest and charges when the borrower agreed repayments, 71 per cent of lenders did not explain how much it will cost to extend the loan and 84 per cent of borrowers did not feel they were treated sympathetically.
During the same four-month period to the end of March, over 11,000 people sought online help from CAB about payday loans.
CAB chief executive Gillian Guy says: “Payday lenders are not standing by their word to treat people fairly by checking they can actually afford the loans on offer. The knock-on affect of their irresponsible lending is devastating for families as they become consumed with debt. Many find they have no money to put food on the table, pay the bills or get to work as lenders drain their bank account in a bid to claw back the debt.
“Payday lenders need to prove their charter is not just an empty gesture by making sure they check the loan is affordable and help those who struggle to pay back the loan.”